According to MF Daily current price for 4 out of 10 top selling brands in Czech Republic (PMCR’s Red&White and Marlboro; BAT’s Viceroy and Imperial’s Moon) could last longer than previously expected. Retail price for above mentioned brands could stay at current levels most probably until July, even though the stock pilling has been legaly limited for only 6 weeks. At the beginning of the year
PMCR tried to make stocks of R&W brand for up to 10 months, however this step required cooperation of retailers which partly failed therefore
PMCR shifted stock volume towards Marlboro brand. This step forced other tobacco producers (BAT and Imparial) to react on this and not to increase their prices of low segment brands earlier than
PMCR.
The legal restriction on stock pilling relates only to overall volume and not to specific brand, therefore tobacco producers have certain operating space to adjust their stocks according their preference. This however is the most favorable for large producers like
PMCR as it can leverage other brands in favor of one or two brands. Thus the competition needs to subsidize their brands if they don’t want to loose market share.
PMCR opted for opportunistic approach as this excise tax hike is the last large one and thus provides the last big chance to re-shuffle the market.
Overall it seems that
PMCR won’t be able to gain significant market share in lower price segment, while we can see some benefits in premium segments as competitors don’t see this segment as their prime target. We estimate
PMCR’s market share could still increase by some 1-1.5% only in comparison to previously estimated 4-5% should the R&W “trick” worked well. We don’t think there will be any significant trading impact based on this news but rather based on expectations on tomorrow or Monday (still not known) release of FY2006 results.